SBB - comment

The Swedish landlord published an exchange offer to all bond and perp holders to exchange their securities for bonds issued by its new housing subsidiary Sevafasigheter AB before offering the shares in that subsidiary to equity investors. SBB are offering a maximum of SEK 2.5bn of Sevafasigheter SUNs paying 4.75% plus a cash component worth 20% of the tender value. The new subsidiary has bank loans of approx. 40% LTV ahead of the SUNs, but once another SEK 2bn of SUNs are issued to partially pay down the shareholder loan (dilutive) then we see the exchange SUNs valued at approx. 55% LTV on the yielding assets only. The exchange ratio will be decided in a reverse Dutch auction. 

Aengus is out today - back in the office tomorrow, so the timing is somewhat unfortunate. The offer seems mostly calibrated to capture the discount on bonds and therefore geared towards the long end. Based on the Reverse Dutch Auction process, we do not expect a highly significant windfall to investors, but we expect the cleaner, less complicated subsidiary to be a more attractive place, even if only a small issuer. The 2.5-year maturity and 20% cash component look attractive too and the latter is mildly coercive. 

Still, even if all bondholders, (Unsecured and hybrids) tender, this exchange offer impacts only c.10% of the securitised debt.  

We are not positioned in SBB at present and the company still needs to address its short end of liabilities.